If you live in Monroe, Miami-Dade, Broward, Palm Beach, Martin, St. Lucie, Indian River, Okeechobee or Highlands County, then you will want to know about the January 3, 2014 decision entered by the United States District Court for the Southern District of Florida (the “Court”). For that matter, if you live in an association somewhere in the great State of Florida, then you still need to know about this case: United States v. Forest Hill Condo Association and Forest Hill Property Owners’ Association, where the Court examined the financial obligation of a foreclosing first mortgagee to a condominium association and homeowners’ association (the “POA”) when the unit owner not only defaulted on their mortgage but also failed to pay assessments. The dispute came about when after taking title as a result of the lender’s foreclosure, the U.S. Department of Housing and Urban Development (“HUD”), as a successor and assignee to the foreclosing lender, requested an estoppel from both of the associations.
Both associations claimed the HUD was liable for all unpaid assessments, together with other fees and charges, including attorney’s fees, levied against the unit in the twelve-month period prior to foreclosure. HUD, on the other hand, contended it was entitled to the protection of a statutorily-created “safe harbor” which limits its liability. It actually fared better, at least as to how much it owed the condominium association for back assessments.
The Court examined whether interest, late fees, collection costs and attorney’s fees were properly included in both associations’ estoppels. The Court concluded that the answer was “no”. The Court reasoned that since assessments are common expenses shared amongst all of the owners and that since the interest, late fees, collection costs and attorney’s fees are assessments levied against an individual as opposed to all of the owners, such individual assessments are not collectable under the “safe harbor” laws.
While HUD was found liable to the POA for back assessments, astoundingly, and to the extreme detriment of the condominium association, the Court took an unexpected left turn when it held that HUD had no liability to the condominium association for any of the past due unpaid assessments that accrued prior to taking title. In reaching this decision, the Court also looked to the condominium association’s declaration and noted that its clear provisions provided that a foreclosing lender had no assessment liability whatsoever, as compared against the legislative requirements set out in section 718.116, Florida Statutes, referred to as the “safe harbor”. The term “safe harbor” refers to the foreclosing lender’s liability to the association for back assessments where the lender, as the prior first mortgagee, is responsible to pay the association the lesser of 12 months’ back assessments or one percent of the initial mortgage. The Court also noted that the condominium’s declaration made it clear that, where permitted, the provisions of the declaration were paramount to the provisions of Chapter 718, Florida Statutes, commonly referred to as the Condominium Act.
What the Court did not discuss was that the initial safe harbor statute contained in the Condominium Act provided that it applied to first mortgages recorded after April 1, 1992. While this language was later removed, it was clear that the safe harbor provisions applied if the owner’s mortgage was entered into after this date. These safe harbor provisions create a procedural regime where lenders can estimate their financial liability in the event of foreclosure which, at least as to this condominium association, some might argue, the court completely ignored!
It will be interesting to see whether other courts follow along and apply this case’s holding. With regard to this decision’s precedential value, based on a legal doctrine called “stare decisis”, the decision of the Southern District Court in this case is merely persuasive authority, meaning that other courts do not have to follow the decision of this case but may take it into consideration. With the exception of the U.S. Supreme Court, no state court is bound by a federal court’s determination regarding state law. In fact, federal courts must follow state courts when analyzing state laws as state courts are the bodies charged with interpreting and applying state laws.
This latest case should be a call to action for all community association board members to contact their legislators and insist that they clarify the safe harbor provisions in this year’s legislation so that the safe harbor laws apply to all lenders!